Investors comparing advertising technology firms PubMatic (PUBM 3.02%) and Magnite (MGNI 1.73%) can see that these competitors share similarities. Both offer advertising platforms that help digital content owners, called publishers, generate income from ad space on websites, mobile apps, and videos.
Both companies experienced stellar revenue growth in 2021. Since cord-cutting accelerated after the coronavirus pandemic's onset, the companies both saw increased advertiser spending on videos streamed via connected televisions (CTV).
Yet despite last year's success, neither company escaped the decline in tech stocks this year. PubMatic and Magnite shares are well off 52-week highs, creating a potential buy opportunity.
But if an investor had to choose just one, which is the better long-term investment? The answer isn't straightforward even though Magnite generates more revenue. Let's take a look at each to help reach a conclusion.
Image source: Getty Images.
PubMatic's success
PubMatic notched record revenue of $226.9 million in 2021, a 53% year-over-year increase, which handily outperformed 2020's 31% year-over-year growth. The company's 2021 performance is only one of several reasons PubMatic stock is a compelling investment.
A key component of PubMatic's revenue is CTV advertising. The company's fourth-quarter CTV sales experienced more than a six-fold year-over-year increase. This CTV income is lumped into mobile and video sales, and together, comprised 67% of Q4 revenue.
CTV will contribute to PubMatic's revenue growth for years. U.S. CTV ad spending is forecasted to increase from $13.4 billion last year to $24.8 billion by 2024. The U.S. represented over 60% of PubMatic's 2021 revenue.
CTV's growth also contributes to the number of times ads are viewed, called ad impressions. Advertisers pay based on the number of ad impressions delivered. As PubMatic increases ad impressions, revenue rises. In 2021, PubMatic's platform processed over 92 trillion ad impressions, a 96% increase from 2020.
This helped drive PubMatic's record revenue last year, which enabled the company to double 2021 net income over 2020. Moreover, PubMatic exited 2021 with a strong balance sheet. Total assets were $550.2 million, with $82.5 million of that in cash and equivalents, compared to total liabilities of $293.0 million and no debt.
The company's revenue growth is poised to continue. PubMatic expects to reach at least $282 million in revenue this year.
Magnite's performance
Not to be outdone, Magnite also possesses elements that make it a compelling long-term investment. The company's 2021 revenue came in at $468.4 million, a 111% year-over-year increase, and more than double PubMatic's revenue.
However, while triple-digit revenue growth is stunning, a significant portion of Magnite's 2021 income came from acquisitions. On a pro forma basis, which accounts for acquisitions, 2021 revenue rose 30% year over year.
Magnite's acquisitions were part of the company's strategy to pivot from older digital advertising channels, such as PCs, to CTV. Magnite's acquisitions accelerated CTV sales from zero in 2019 to 40% of 2021 revenue.
Magnite sees CTV as its biggest growth engine. The company anticipates that advertisers that historically spent billions on traditional TV commercials will increasingly shift those dollars to streaming channels.
After all, a plethora of streaming services exists, and live sports is now expanding into the space. The number of U.S. digital live sports viewers is forecasted to grow from 57.5 million last year to 74.6 million next year.
Like PubMatic, Magnite expects revenue to rise in 2022. The company forecasts this year's revenue to exceed $500 million, excluding the company's payments to its publishers, referred to as traffic acquisition costs (ex-TAC). Magnite's 2021 revenue ex-TAC was $416.5 million. The company targets long-term revenue ex-TAC growth of 25% annually.
Magnite's balance sheet is solid. The company ended 2021 with total assets of $2.7 billion, with $230.4 million in cash and equivalents, compared to $1.8 billion in total liabilities.
Is PubMatic or Magnite the better investment?
PubMatic's and Magnite's successes both make good investments. The growth of the digital advertising industry also acts as a tailwind for these companies. Global digital advertising generated $491.7 billion in ad spending last year, and is expected to expand to $785.1 billion by 2025.
But if you had to choose just one, the better choice is PubMatic. Despite Magnite delivering double the revenue of its competitor, Magnite exited 2021 with net income of only $65,000 after suffering net losses in previous years.
| Year | PubMatic Net Income | Magnite Net Income/(Loss) |
|---|---|---|
| 2021 | $56.6 million | $65,000 |
| 2020 | $26.6 million | ($53.4 million) |
| 2019 | $6.6 million | ($25.5 million) |
Data source: PubMatic and Magnite.
It's common for tech companies to favor business growth over profits, but that makes PubMatic's years of profitability more impressive. Magnite's acquisitions also left it with over $720 million in debt, while PubMatic has zero debt.
PubMatic's stronger financials give it the edge over Magnite, making PubMatic the better long-term investment choice.
